Most homeowners finance their home purchases through various types of mortgage loans. Sometimes, homebuyers will even use two mortgages, a first mortgage and a second mortgage, to buy their homes. First and second mortgage lienholders always attach liens, which are public notices of debt owed by borrowers, to their borrowers' properties. The issue of mortgage lienholders and whose liens are senior is usually settled by their recording dates on property titles, though all mortgage lienholders have foreclosure rights.

Lienholder Foreclosure Rights

Any lienholder on a property's title may foreclose that property to recover what it is owed. For example, a homeowner defaulting on a second mortgage while paying on a first could see the second mortgage lienholder foreclose. Also, second mortgage lienholders might try to foreclose when a first mortgage lienholder attempts foreclosure. Lastly, when a property's first mortgage lienholder attempts foreclosure a second mortgage lienholder might follow suit to protect its own property lien interests.

Lien Elimination

When property lienholders foreclose, all liens junior to those foreclosing liens are eliminated by the foreclosure. Junior lien elimination on foreclosure is also why second mortgage lienholders might attempt foreclosure when first mortgage lienholders foreclose. Second mortgage lienholders usually foreclose once first mortgage lienholders do so because they're attempting to gain some of the proceeds from the sale of the foreclosed house. The creditors who held junior liens eliminated by a foreclosure, though, can also seek court-ordered deficiency judgments that allow them to garnish borrowers' wages and bank accounts to recover the amount owed.

Leinholder Seniority Rights

Senior liens on property titles are always paid first in a foreclosure, regardless of which lienholder foreclosed. Lienholder seniority rights and payment rules in foreclosure are why junior property lienholders sometimes hesitate to foreclose properties. Even when junior property lienholders successfully foreclose, senior lienholders are paid from sale proceeds first, with junior lienholders frequently left with little to nothing. Typically, junior property lienholders prefer to work with defaulting buyers to find payment solutions other than foreclosure.

Purchasing First Mortgages

When their borrowers default, junior second mortgage lienholders sometimes purchase the senior first mortgage lienholders' liens and then foreclose both their liens. Additionally, when senior first mortgage lienholders foreclose, junior second mortgage lienholders might purchase those senior foreclosing lienholders' liens and also foreclose. Generally, junior second mortgage lienholders purchase senior first mortgage lienholders' liens and then foreclose only if the foreclosed property is valuable enough to cover all the money owed on both loans. Sometimes, mortgage borrowers being foreclosed by two lenders are actually being foreclosed by one lender owning both liens.

Junior Lienholder Foreclosures

There are instances when second mortgage lienholders foreclose because they're assured of being paid something from sale proceeds. For example, if you owe little on your first mortgage, a second mortgage lienholder might foreclose in expectation of recouping your defaulted debt. A senior first mortgage lienholder might foreclose when it learns of a junior lienholder's foreclosure just to ensure it's paid everything it is owed after the foreclosure sale. Junior lienholder foreclosures can become complicated when senior lienholders follow suit.

About the Author

Tony Guerra served more than 20 years in the U.S. Navy. He also spent seven years as an airline operations manager. Guerra is a former realtor, real-estate salesperson, associate broker and real-estate education instructor. He holds a master's degree in management and a bachelor's degree in interdisciplinary studies.